Transforming Supply Chain Bhawnesh Mathur Arrow Electronics, Inc.

1. Transforming Supply Chain Bhawnesh MathurArrow Electronics, Inc.

2. Agenda • Introduction to Arrow Electronics, Inc. • Industry Dynamics and Their Impact on Customer Needs • Transforming Arrow’s Supply Chain Through an End-to-End Approach • Summary and Q&A

3. Supplier OEM Contract Manufacturer ODM Introduction to Arrow Electronics, Inc. • Distributor of Electronic Components and Computer Products • Founded in 1935 • Headquartered in Melville, New York • Global Player in Electronics Supply Chain • 53 Countries • 600 Suppliers • 150,000 Customers • Annual Sales of $11 Billion

4. Arrow’s Vision Statement

5. Agenda • Introduction to Arrow Electronics, Inc. • Industry Dynamics and Their Impact on Customer Needs • Transforming Arrow’s Supply Chain Through an End-to-End Approach • Summary and Q&A

6. Increasing Regional & Global Competition Growth in Differentiated Components Multi-SitePurchasing & Manufacturing Shrinking Product Lifecycles EnvironmentalComplianceRequirements Numerouse-BusinessOptions Increasing ProductVariety Continuing ConsolidationTrends Industry Dynamics Have Greatly Complicated the Electronics Supply Chain Supply Chain Complexity

7. This Complexity Has Caused Customer Needs to Evolve from Few and Simple … Customer Functions & Needs Engineering Purchasing Manufacturing Complex Supply Chain Negot. Supply Chain Order Mgmt Traditional Parts for Dollars Ordering Excess Buying & Selling Tech. Discovery Design Activity Prototype Develop. Spot Buying InboundLogistics Mfg End of Life Quote Parts A R R O W Powering the supply chain

8. … To Many and Complex! Customer Functions & Needs Engineering Purchasing Manufacturing Complex Supply Chain Negot. Supply Chain Order Mgmt Traditional Parts for Dollars Ordering Excess Buying & Selling Tech. Discovery Design Activity Prototype Develop. Spot Buying InboundLogistics Mfg End of Life Collaborative forecasting Inventory bonding Supply chain visibility SC Mgmt Outsourcing e-Business VMI / SMI 3PL Services Programming Assembly Kitting & turnkey Engineering Parametric search Environmental data Risk assessment Part change notification A R R O W

9. 71% 69% 64% 54% 38% 17% 3% '00 '90 '95 '80 '03 '05 '04 To Meet Customer Needs, Arrow Has Transformed Itself Into a Supply Chain Solutions Provider Arrow Electronics, Inc.Global Supply Chain Service Related Revenue

10. Agenda • Introduction to Arrow Electronics, Inc. • Industry Dynamics and Their Impact on Customer Needs • Transforming Arrow’s Supply Chain Through an End-to-End Approach • Summary and Q&A

11. Source Source Source Make Make Make Deliver Deliver Deliver Arrow’s Chain Management Approach Starts with Delighting Customers . . . Suppliers Customers Plan Plan Plan Connected With Connected With Goals: Suppliers’Distributor of Choice Supply Chain Excellence Delighted Customer . . . Which is Empowered By Supply Chain Excellence and Preferred Supplier Relationships

12. Customer Segmentation Critical Tools & Services Differentiated Tools & Services Delighting the Customer

13. High: • Core supplier base • Value partnerships • Low: • Many suppliers • Do not value partnerships • Low: • Little appreciation for SC • Do not invest in SC • High: • SC critical to success • Invest in SC Arrow Uses a Customer Segmentation Framework to Understand Customer Characteristics . . . Standard Solutions TailoredSolutions High SUPPLIERCONCENTRATION Parts forDollars Price ofAdmission Low Low High SUPPLY CHAIN SOPHISTICATION

14. Service Approach LeverageServices MinimizeServices Services/Tools Sales/Support Model Simple Low-Cost Complex Sophisticated . . . And to Define Specific Service Strategies High TailoredSolutions Standard Solutions PartsforDollars SUPPLIER CONCENTRATION PriceofAdmission Low Low High SC SOPHISTICATION

15. Arrow Has Developed a Segment-Aligned, Differentiated Tool & Service Portfolio Examples Tailored Solutions Standard Solutions • Collaborative forecasting • Bonded inventory • Consignment • Auto-replenishment • Kitting & turnkey • On-line decision support • Business Needs Analysis • VMI / SMI • In-plant store • Staffed terminal • New product introduction • Supply chain outsourcing • Integrated systems • Total cost analysis Parts for Dollars Price of Admission • On-line part search • On-line buying • VMI / SMI • Electronic communications

16. Case Study: Tailored Solutions Customer Background Customer Strategy • Provider of audio / visual control and automation systems • Annual sales of $90 million • Overhauling its supply chain • Utilize Arrow to manage all component sourcing globally • Integrate Arrow with internal engineering, procurement, planning and EMS management processes • Consolidate to a single EMS provider with multiple locations; allow a profit on labor only • Direct the EMS provider to procure components exclusively from Arrow • Institute a centralized VMI hub • Manage product life cycle throughout the supply chain Customer Objectives • Reduce and standardize global raw material costs • Enhance external design support • Reduce design-to-manufacturing cycle time • Improve continuity and flexibility of supply • Limit supply chain liability and risk

17. Case Study: Tailored Solutions Local NF Sources Components Other Distributor 2 Distributor 1 NF Eng Support Arrow FAEs Forecasts/POs Gatekeeper Invoice/Payment Design Eng Arrow Inc. Customer Arrow Project Manager/On Site Team POs (Assy) Freight Forwarder Forecasts/POs Freight Forwarder EMS Site 4USA Freight Forwarder Proto CM USA EMS Site 1Thailand EMS Site 2 Malaysia EMS Site 3 Juarez POs (Assy) Invoice/Payment

18. Case Study: Tailored Solutions • Customer Benefits • NPI process • Design cycle reduced from 12 to 6 weeks • Supply chain costs • Customer raw turns virtual; moving to 10 at EMS network • Planning and purchasing resources reduced • Supply chain performance • Liability reduced 60% • Finished goods availability dramatically increased • Total First Year Savings $3+ Million • Supply Chain Services • Single global logistics provider • Franchised & non-franchised • NPI & production • Design and materials management support • FAE support • Inside sales & material planners onsite • VMI at EMS sites • Information services • Arrow Collaborator • Arrow Risk and Alert • Shared Pro-Series

19. Differentiated Tool Example: Arrow Collaborator

20. Differentiated Tool Example: Arrow Collaborator

21. Find Similar Part Parameters Customer Notes Data Sheets Cross References PCN Notices Differentiated Tool Example: Arrow Risk Manager

22. Flawless Execution Global Processes Common IT Platform Achieving Supply Chain Excellence

23. Arrow Has Established a Clear Set of Core Global Strategic Priorities Arrow’s Strategic Priorities Objectives • Voice of the Customer • Understand customer needs and experiences • Transform findings into action • Back to Basics • Execute the fundamentals flawlessly (e.g., perfect order, responsiveness, ease of doing business) • Be the industry’s service leader • Have the industry’s most effective & cost efficient supply chain • Operational Excellence • Talent Development • Attract, retain and develop the right talent • Reward performance

24. Ideas Specification Deployment Plan Feedback Analysis Design Deployment Execution Monitoring Development Concept Metrics Test Plan Deployment Lead IT Supply Chain Supply Chain Supply Chain Business IT Supply Chain Supply Chain Global Business Units Global Business Units Global Business Units Global Business Units Global Business Units Significant Participation Deployment Continuous Process Improvement Innovation Is Managed Through a Proven Continuous Process Improvement Model

25. Integrated Processes & Systems Collaborative Forecasting & Inventory Optimization Unique Global Supply Chain Models Becoming the Distributor of Choice

26. Real-Time Process Integration With Suppliers Arrow’s “Concept to Cash” RosettaNet Program Product Information Demand Creation Forecast/ Inventory Quote/ Price & Availability Order/ Order Mgmt Backlog Advanced Ship Notice Invoice / Invoice Status Payment w/ Bank Notice 2A1 2A10* 2A13** 5C1 5C2 5C3 5C4 4A2 4A4 4A5 4D1 3A1 3A2 5D1 3A4 3A7 3A8 5D3 5D5 3A6 3B2 3Bx** 3C3 3C4 3C6 3C6** Done Done In Dev Done Done Done Done Done TBD * Piloted, ** Under investigation

27. Traditional EDI Model Up to 2 weeks Sub line Rework Post ship Rework Batch Processing Error Rework Order Latency Reduction Mechanisms 2-4 days 2-4 days 40% 2-4 hrs 60% in 24 hrs • Real-Time standard • Schedule dates in 24 hrs at best • Manual process on split line items • Many acknowledgement failures • Iterations of reschedules • Lost window of selling visibility • Back-End integration • Collaboration rules Advanced RN Model Over 90% Reduction Real-time Rework • Controlled processes Order 80% 2-4 min 20% in 24 hrs • Acknowledgements within minutes; rapid exception resolution • Immediate visibility to all ship dates • No acknowledgement failures • Stabilized schedules, improved productivity Real-Time Process Example: Order Management

28. Agenda • Introduction to Arrow Electronics, Inc. • Industry Dynamics and Their Impact on Customer Needs • Transforming Arrow’s Supply Chain Through an End-to-End Approach • Summary and Q&A

29. Summary • Industry dynamics have and will continue to change customer needs and Arrow’s supply chain role • Arrow’s supply chain management approach starts with delighting customers . . . • . . . Which is empowered by supply chain excellence and preferred supplier relationships • Success is a journey

30. Supply Chain Impacts . . . All Financial Metrics . . . & Shareholder Value • Enhanced customer service • Improved inventory utilization & productivity Appropriate Working Capital Increased Capital Efficiency Reduced Fixed Capital Increased Shareholder Value • Best-in-class customer relationships • Differentiated service capabilities Increased Revenue and Margin Increased Profit • Best-in-class strategic supplier partnerships • Unique supply chain models Appropriate Cost Model The Ultimate Goal of Arrow’s Journey is to Increase Shareholder Value

31. Our Journey is Underway! Arrow Stock PerformancePast 3 Years 2003 2004 2005

32. Thank You!